The past week was every bit as challenging as we expected—and more…only it was the return of stark reality to investor sentiment rather than continued blind bullishness. Our Supplemental Trades portfolio was hit with a sell-off in energy shares steeper than any week except one in the past year. We canceled the planned adjustment to XLE Friday afternoon when the share price plunged from its opening surge back down to the prior day’s close (before recovering some late in the…
A couple of years ago, a member told me he feared becoming a member of “The Daily Adjustment Club”. I think of that phrase every time extreme market swings force us to adjust two or three days in a row, and I’ve made minimizing trading frequency a goal for each new refinement to the Calendar Options strategy. We’ve been successful in reducing trading frequency overall, but the market will always have rare periods where it whips back and forth to…
This afternoon’s market implosion has triggered another risk-management alert for our XLE Supplemental Trades portfolio. We’re opening the following hedge position to further offset our delta exposure:
Day limit order
Buy to open 1 XLE May 74 puts
Sell to open 2 XLE May 70 puts
Buy to open 1 XLE May 66 puts
for a net debit of $0.74 or better.
Note, once again, that our target dollar trade size is equivalent to our currently…
With XLE down more than 6% since Monday morning, we’re opening a downside hedge position, as follows:
Day limit order
Buy to open 1 XLE May 79 put
Sell to open 2 XLE May 75 puts
Buy to open 1 XLE May 71 put
for a net debit of $1.49 or better.
Note that 1contract represents our base position for this hedge trade. In order to come as close as possible to matching our Model Portfolio…
Front- to back-month volatility skew in XLE options has narrowed enough this morning to give us the opportunity to open a second May position, as follows:
Day limit order
Buy to open 2 XLE Jun 84 calls
Sell to open 2 XLE May 84 calls
Buy to open 2 XLE Jun 80 puts
Sell to open 2 XLE May 80 puts
for a net debit of $1.85 or better.
Note that 2 contracts is our…
Members who’ve been with us for some time are all too familiar with the word “challenging”. This week the VIX touched lows not seen since mid-2007, on a rally in the S&P 500 index practically as sharp as they come. The S&P and the Dow are nearing three-year highs, the Nasdaq Composite is verging on a new ten-year high, and the Russell 2000 closed the week at a new all-time high. To quote thinkorswim’s Tom Sosnoff from Friday’s “Wall Street Wrap-up”, “There…
We’re taking the following action to manage risk ahead of tomorrow’s FOMC policy statement:
Day limit order
Buy to close 1 XLE May 78 call
Sell to open 1 XLE May 80 call
for a net debit of $1.17 or better.
Note that the 1 contract specified above represents the remaining half of our short position at the 78 strike. We now have a May/June call calendar at 80 and a May/June 75/73 put diagonal. Also note…
This week’s main story for us was more volatility of volatility. After a 20% spike Monday morning, the VIX closed the week almost 7% lower than the prior Friday. SPY swung from our down-side risk-management threshold to an upside buy signal in two days, and today came within $0.05 of triggering another entry above the market.
New options traders are told time and again that market-neutral income strategies don’t work in this kind of environment; the past 2-1/2 years of…
Now that our core SPY trade has been filled, we’re adjusting our XLE Supplemental Trade position as follows:
Day limit order
Buy to close 1 XLE May 78 call
Sell to open 1 XLE May 80 call
for a net debit of $0.98 or better.
Note that the 1 contract specified above represents half of our short position at the 78 strike. Also note that as a Supplemental Trade, this order will not be autotraded.
Analysis: We’re…
At Friday’s close, our open SPY May/June 131/135 double-calendar was about at breakeven, and delta as a percentage of capital at risk was roughly 2.3%. Our portfolio (position) vega was approximately 5.5% of capital at risk. In short, we’re very well-positioned for the coming week.
The plan is to enter a second May trade this week, but only if SPY climbs above about $134.40 or falls below about $130.60. We still have more than four weeks until May expiration, so there’s…
Monday, May 9, 2011
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